Monday, 23 August 2010

Housing Starts

CLG released the latest figures for housing starts were released a few days ago.

There were 28,590 starts (seasonally adjusted). According to the press release:
- 13% higher than last quarter
- 84% higher than the March 2009 trough
- 42% below there March 2007 peak

CLG provide more comparisons but all those numbers left me a little dazed. If you take a 10 year pre-recession average of Q2 you get around 42,000 starts. So I guess we should view that figure as about 2/3 of the 10 year average.

There are some reports that scrapping the regional spatial strategies has led to plans for 84,000 houses being reviewed or cut. Of course, not all of these may not have been planned for the same year, but if these figures are right you would expect them to start showing up in the Q3 figures.

Wednesday, 11 August 2010

Who benefits from new housing?

I was thinking a little more on the new home bonus and reflecting, in particular on the following: "Mr Shapps urged councils to open up an honest and direct debate with the communities they serve about the benefits of building new homes in their area - how they can reap the benefits of development and not just the costs."

The problem is that new development doesn't tend to benefit existing residents. NIMBY's are generally acting in their own self interest because new housing will tend to decrease the value of the existing housing stock (because it takes away valuable amenities that are capitalised in to prices). An honest and direct debate doesn't address that problem!

[PS: From Today's (11/08) FT Editorial: "But the bonus scheme does not do enough. It smacks of bribing councils not to use the beefed-up powers to veto development the government gave them by scrapping Labour’s housing policy. What if councils think new developments hurt their constituents’ house prices more than extra government money makes up for?"]

Tuesday, 10 August 2010

New Home Bonus

The coalition has announced plans to provide LAs with financial incentives to agree to new housebuilding.

In the area of housing, I am no fan of top down master plans (like the, now defunct, Regional Spatial Strategies). We need a mechanism that allocates land to housing where it is needed and that compensates affected local communities so that they support new housing rather than opposing it. Against this background the approach advocated by the government is a step in the right direction.

There are still important problems to resolve. The idea is that the scheme will give LAs incentives by matching council tax receipts for six years on any new homes. This will help resolve the problem that grant funding allocation (which is broadly proportional to population) takes time to respond to population growth. It will not address the problem that new homes may impose marginal costs that are considerably larger than the average costs of serving existing populations (for example, if they require communities to build new local facilities such as schools). Presumably, the intention is that the Community Infrastructure Levy will try to address this problem. Whether the combined incentives provided by the homes bonus and the levy are significant depends on the costs that LAs face - I don't know of any good evidence on this.

Assuming the resulting incentives are "significant" will this be enough to get houses built where they are needed? That's less clear for two reasons. First, house prices provide a strong signal as to where we need new housing but when looking across LAs council tax is not very strongly correlated with house prices. This means the incentives are not much stronger for LAs where there is the strongest demand for new housing. Second, the incentives compensate LAs but not the most directly affected local residents (the immediate neighbours of housing development). Traditionally, the planning system has tried to get around this problem by (mostly) ignoring the wishes of local residents. Quite rightly, the coalition government is trying to move away from this unpopular position. But giving more say to local residents means greater opposition to new developments and, as yet, the government do not have good mechanisms for addressing that problem.

Wednesday, 4 August 2010

Social Housing Swap Shop

Social housing is associated with three "mobility" problems relating to tenure (people are unlikely to move out to renting or owning), size (people have homes that are too big or small for their current needs) and geography (allocation is quite localised making it hard to get housing in another Local Authority and making it hard to move). The coalition government has been talking about how to tackle these problems.

In terms of size and geographical mobility, CLG have been talking about mechanisms to encourage swaps. I am retired with a big house near the city centre, you are a working family with a small flat in the suburbs. We are both better off if we can swap. It really is hard to see why anyone should object to this, aside from the fact that it may have relatively little impact on the problem (at some point early on in economics, students learn that one of the roles of money is to facilitate exchange because it removes the need for double coincidence of wants - i.e. we both have to want to swap).

Other proposals are more tricky. For example, giving people the right to ask to move must be good from the point of view of the person asking. But, the overall effect depends on the supply of social housing in different areas. In unpopular areas it means low occupancy, while in popular areas it means excess demand. How do you square the latter with the idea that Local Authorities should be allowed to prioritise "local people"?

Similarly, removing the job market disincentives created by social housing provision (and through the housing benefit system) would seem to be very important, but changing tenure conditions may well exacerbate that problem, not mitigate it. More generally, insecurity of tenure is (at least according to the anecdotal evidence) a major cause of considerable distress to many social housing tenants. That isn't to say that you shouldn't try to tackle these issues but it does highlight how difficult is the road ahead.